articles

Residential property developer, Barratt Developments, has agreed to pay the costs of reinforcing fire safety in a building they developed, taking the burden off leaseholders. The company has committed to paying for future and backdated costs for employing a fire warden and the removal and replacement of unsafe cladding from the Citiscape building in Croydon. Practitioners with expertise in property law at JPC Law and Charles Russell Speechlys LLP, look at the ruling of the First-Tier Tribunal on these matters and balance the potential outcomes.

In response to the Grenfell Tower fire, the government established a Building Safety Programme providing guidance to building owners on identifying and removing unsafe classing in buildings.

Despite Sajid Javid, the Housing Secretary, urging private sector building owners to not pass on the costs of cladding replacement to leaseholders, there is a risk of leaseholders having to pay large amounts to ensuring the safety of their residencies.

As a result, discussion between the government and private sector landlords, freeholders and house builders, including Barratt Developments, have been ongoing to resolve this issue.

The First Tier Tribunal’s ‘nightmare’ ruling

Yashmin Mistry, partner and Property Practice group leader at JPC Law, welcomes Barratt’s decision as a ‘relief’ for Citiscape leaseholders, highlighting that ‘much to the dismay of leaseholders’, the First Tier Tribunal Property Chamber (FTTP) ‘recently held that the cost of "waking watch" (until 19th December 2017 at least) and the renovations to the cladding costs are, on the construction of the lease terms in this development, were costs which could properly and correctly be put through the service charge account for the block—for which the leaseholders were wholly responsible’.

The FTTP, Mistry says, ‘was conscious in handing down its decision on the Citiscape Building case so as not to set a precedent across other blocks’, as ‘hundreds’ more buildings have failed their cladding tests since the Grenfell Tower fire.

The FTTP’s decision ‘that the leaseholders may have claims against a number of parties—manufacturer, developer, local authority, and potentially DCLG if the relevant building regulations were not fit for purpose’, Mistry argues, has ‘created a nightmare situation for leaseholders’, because:

• ‘claims against other parties were likely to be long shots’

• ‘the costs of running potential litigation would invariably have meant costly legal bills and the leaseholders would be tied up in litigation which would have made their flats unsaleable’

Landlord versus leaseholder

Barratt, while not the present freeholder or managing agent, has agreed to cover the costs as they were the original developer of Citiscape.

Joe Edwards, associate and property litigation specialist at Charles Russell Speechlys LLP, says that a ‘building contractor might be liable’ if ‘the cause of the fire risk is seen as a building defect’, which would also mean ‘that the freeholder cannot recover the costs from the tenants’.

Conversely, Edwards adds: ‘The individual leases are the first documents we consult. Depending on the nature of the works, the landlord may have a contractual right to recover costs from the tenants through the service charge mechanism. In the residential context, there are statutory limitations on what can be recovered without first undertaking a consultation exercise (unless court dispensation is obtained).’

He concludes that the outcome of cases will be decided on ‘individual circumstances’, dependent on the details.

Mistry calls for government intervention, with reference to appealing the FTTP’s decision, to see wider changes to this case-by-case approach which could see leaseholders’ house prices dropping ‘dramatically’, with them losing their homes as the worst case scenario.